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United States District Court, S.D. New York

November 18, 2005.


The opinion of the court was delivered by: SHIRA SCHEINDLIN, District Judge


On October 17, 2005, The Argo Fund, Ltd. ("Argo"), a creditor of Telecom Argentina, S.A. ("Telecom"), filed a motion to withdraw the reference of the above captioned petition from the United States Bankruptcy Court for the Southern District of New York to the United States District Court for the Southern District of New York, pursuant to 28 U.S.C. § 157(d). For the following reasons, Argo's motion is denied.


  Telecom is a sociedad anonima organized under Argentine law which provides telecommunications services in Argentina.*fn1 Telecom claims that due to Argentina's economic recession and currency devaluation in 2001, it faced a severe liquidity crisis and inability to service its debt.*fn2 Under Argentine law, an insolvent company can restructure its debt through a privately negotiated Acuerdo Preventivo Extrajudicial ("APE").*fn3 The APE must be approved by a supermajority in amount and majority in number of the holders of debt, and then confirmed by an Argentine court.*fn4 Once confirmed, all of the company's unsecured creditors are bound by the APE.*fn5

  Telecom negotiated an APE with its creditors and secured an Argentine court's approval.*fn6 The beneficial holders of Telecom's outstanding unsecured financial debt voted in favor of the APE by a supermajority of 94.4% in principal face amount and 82.4% in number.*fn7 However, U.S. Bank N.A., the indenture trustee for certain notes issued by Telecom, refused to cancel notes held by creditors who did not affirmatively consent to the cancellation.*fn8 Consequently, on September 12, 2005, Telecom's foreign representative, the Board of Directors of Telecom Argentina, S.A. ("Board"), filed a petition for relief under section 304 of the Bankruptcy Code*fn9 in the bankruptcy court seeking a judgment giving full force and effect to the APE in the United States.

  Argo claims to be the beneficial holder of interests in notes ("Notes") issued by Telecom in the United States under an indenture qualified under the Trust Indenture Act ("TIA").*fn10 Argo claims the APE would impair its rights under the Notes, in violation of the TIA. The TIA provides that "the right of any holder of any indenture security to receive payment of the principal and interest on such indenture security . . . shall not be impaired or affected without the consent of such holder."*fn11 Under the APE, Argo would receive either approximately eighty percent of the principal owed under the Notes, or new notes which extend the dates on which principal was due, without compensation for outstanding interest.*fn12 Argo did not agree to the APE or participate in the Argentine proceedings.*fn13 Argo also contends that Telecom had sufficient assets to cover its outstanding obligations and therefore the APE is "the equivalent of a bad faith bankruptcy filing."*fn14 Argo now moves to withdraw the reference of the case from the bankruptcy court to the district court pursuant to section 157(d) of Title 28 of the United States Code.


  A. Mandatory Withdrawal

  Section 157(d) mandates that the district court withdraw a proceeding referred to the bankruptcy court if "resolution of the proceeding requires consideration of both title 11 and other laws of the United States regulating organizations or activities affecting interstate commerce." The Second Circuit construes this provision "narrowly," requiring withdrawal of the reference only if "substantial and material consideration of non-Bankruptcy Code federal [law] is necessary for the resolution of the proceeding."*fn15 Withdrawal of the reference is appropriate where the case would require "the bankruptcy court to engage itself in the intricacies" of non-Bankruptcy law, as opposed to "routine application" of that law.*fn16 The "bare contention" that non-bankruptcy law is dispositive or in conflict with the bankruptcy code is not sufficient.*fn17

  B. Discretionary Withdrawal

  Section 157(d) gives the district court discretion to withdraw the reference of a case referred to the bankruptcy court "in whole or in part . . . on timely motion of any party, for cause shown." Although the statute does not define "cause," the Second Circuit has held that "[a] district court considering whether to withdraw the reference should first evaluate whether the claim is core or non-core."*fn18 Section 157(b)(2) sets forth a nonexhaustive list of core proceedings. Congress intended that core jurisdiction be construed broadly to avoid overwhelming the district court with bankruptcy matters.*fn19 "[C]ore matters are ones with which the bankruptcy court has greater familiarity and expertise."*fn20 After the court determines whether a matter is core, the inquiry turns to "whether the claim or proceeding . . . is legal or equitable, and considerations of efficiency, prevention of forum shopping, and uniformity in the administration of bankruptcy law."*fn21


  A. Mandatory Withdrawal

  Argo argues that withdrawal of the reference is mandatory because this case requires the bankruptcy court to determine Argo's rights under the TIA. But the TIA is not dispositive here. A recent section 304 proceeding involving an Argentine APE, In re Board of Directors of Multicanal S.A., addressed this very issue: whether the TIA bars the restructuring of a company's debt purusant to an APE over the objections of a minority noteholder.*fn22 In a well-reasoned decision, Bankruptcy Judge Allan L. Gropper held that "there is no real conflict" between the TIA and section 304.*fn23 A noteholder's rights under the TIA are not inviolate — rights under a TIA-qualified indenture can be impaired in a U.S. bankruptcy case.*fn24 If a foreign insolvency proceeding is entitled to comity under section 304, there is no principled basis for concluding that a noteholder's rights under the TIA should trump that proceeding.*fn25 Foreign debtors need not grant recalcitrant minority noteholders absolute rights under the TIA that those noteholders would not have in a bankruptcy case in the United States.*fn26 A person who contracts with a foreign entity is subjected to the laws of the foreign government that affect "the powers and obligations of the corporation with which he voluntary contracts."*fn27 This includes bankruptcy laws.*fn28 In light of Multicanal, the bankruptcy court need not engage in substantial interpretation of the TIA.*fn29

  Argo attempts to distinguish Multicanal on the grounds that the company in that case was genuinely insolvent.*fn30 Argo claims that the "critical issue" here is "whether the protections of Section 316(b) of the TIA can be unfairly cast aside in the context of a viable company in a foreign proceeding, when those same protections would never be treated in such a manner in a United States proceeding."*fn31 This begs the question. The critical issue here is a matter of bankruptcy law: whether the APE should be afforded recognition under section 304. Section 304(c) directs the bankruptcy court's inquiry to factors including the just treatment of creditors, protection of U.S. creditors against prejudice and inconvenience, and prevention of preferential or fraudulent dispositions of property of the estate.*fn32 Under section 304, the rules of the foreign jurisdiction "need not be identical to those of the United States," but they must be "substantially in accordance" with United States bankruptcy law.*fn33 Consideration of the Telecom petition based on the factors set forth in section 304 does not require the bankruptcy court to explore the intricacies of the TIA.*fn34 If the TIA is relevant at all, its application is a routine matter.

  B. Discretionary Withdrawal This Court declines to exercise its discretion to withdraw the reference under section 157(d). Argo does not argue that a petition under section 304 is a non-core proceeding.*fn35 Argo argues only that the APE is not consistent with the purposes of section 304.*fn36 But, as previously discussed, whether the APE is entitled to recognition under section 304 is a matter the bankruptcy court is best suited to determine. Inquiries such as whether the APE procedures are "substantially in accordance" with United States bankruptcy law fall squarely within the expertise of the bankruptcy court.*fn37 Due to the bankruptcy court's unique familiarity with section 304 petitions, the Orion factors weigh against withdrawing the reference.*fn38 Resolution by the bankruptcy court best serves judicial efficiency, expedience, and uniformity in the administration of the bankruptcy laws.*fn39


  For the foregoing reasons, Argo's motion is denied. The Clerk of the Court is directed to close the motion [Docket No. 1] and the case.



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